Difference between Equity and Bond Investments

Investors are often confused whether to invest in equity stock or bond investments. Though it mainly depends one’s own interest and risk taking behavior, market conditions are also important while investing. Some investors seek good returns hence they are ready to take risk. Contrary to this, others who are not interested to take risk prefer safe investments. The risk taking investors can choose equities while the others can invest their money in debt investment.

Normally, investors at a young age prefer equities while the investors who are more aged prefer debt investments. Before choosing to invest in equities or bonds, know the difference between them.

Equity shareholders are partial owners of the company based on the number of shares they own in that company. They receive dividends and capital appreciation on their investments. But, dividend payment is not mandatory for the companies and they are paid only if the companies make profits. On the other hand, bondholders are the creditors of the company. They receive interest in the form of coupon payments at specified intervals.

Equities do not have any maturity date but majority of the bonds other than perpetual bonds have maturity dates. Shareholders have voting rights but bondholders do not have such rights.

At the time of winding up of a company, bondholders are paid before equity shareholders. Equities yield higher returns than bonds as they are involved with higher risk. Equities are liquid since they are traded on a Stock Exchange for the convenience of investors.

Investments move according to the sentiments of markets. If stock market is highly volatile and its performance is bad, then investors tend to seek safer investments. In such cases, they prefer investing in bonds. On the other hand, if the interest rates are constantly decreasing, investors choose equities.